Monday, September 29, 2008

Money Markets

For the first time, the weekly inventory report shows a significant shortage in supply, but most of that is due to the Gustav/Ike impact on the refineries:

Total products supplied over the last four-week period has averaged 19.5 millionbarrels per day, down by 5.3 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.0 million barrelsper day, down by 3.5 percent from the same period last year. Distillate fuel demand has averaged 3.9 million barrels per day over the last four weeks, down by 5.5 percent from the same period last year. Jet fuel demand is 4.5 percent lower over the last four weeks compared to the same four-week period last year.

Pretty hefty demand drops. The relatively high drop in distillate demand is partly the effect of lower heating oil purchases.

The silver lining is that if these prices keep dropping it will help the global economy a bit.

We seem to be getting close to a bottom on a lot of US company stocks, so I wouldn't let today's exchange movements rattle you too much. However, it looks like many retail stocks have a long way to fall.

The one component of the bailout bill that really must go through, even if the bailout bill overall doesn't go anywhere is the part about paying interest on bank reserves at the Fed. The Fed, along with other CBs, is now hurling money into the market. Most significantly, the increase of the 84 day TAF auction funds from 25 billion to 75 billion is aimed at controlling fears over the money market's liquidity and most specifically the supply of credit to the less sterling companies.Discount rates

Term

AAnonfinancial

A2/P2nonfinancial

AAfinancial

AAasset-backed

1-day

1.47

4.53

1.37

2.67

7-day

1.85

5.97

2.19

4.46

15-day

1.93

5.75

3.20

4.43

30-day

2.13

5.91

3.14

5.55

60-day

2.13

6.01

3.52

3.10

90-day

2.09

n.a.

3.40

5.25

Trade data insufficient to support calculation of the 90-day A2/P2 nonfinancial rate for September 26, 2008. Note that the shortage of money is now popping up in A2/P2 nonfinancials. This is where the real economy can take a massive beating, so the Fed will keep pumping. The 60 v 90 day asset-backed.The Fed is moving to ensure that money will be available at year end:

Forward TAF AuctionsThe forward TAF auctions are a new program designed to provide reassurance to market participants that term funding will be available over year-end. The timing and terms of the two forward TAF auctions will be determined after consultations with depository institutions that utilize the TAF program.

It is anticipated that there will be two auctions in November totaling $150 billion. These auctions will provide short-term (one- to two-week term) TAF credit over year-end.

The terms of the Wachovia buyout (it's banks, not everything) are not known, but the Richmond Fed issued a statement indicating it is involved somehow:

Richmond Fed Ready to Provide Liquidity in Wachovia Transition

Richmond, VA — The banking operations of Wachovia Corp., which is headquartered in Charlotte, N.C., are being acquired by Citigroup Inc. The transaction is being facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury.

Citigroup will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia. Wachovia will continue to own AG Edwards and Evergreen.

In support of this transition, the Federal Reserve Bank of Richmond stands ready to provide liquidity as needed.

So regardless of whether the bailout bill passes, a major bailing operation has commenced.

In the UK, the chaos is growing. There is a lot of political wrangling about Lloyd's TSB takeover of HBoS, and RBS (Royal Bank of Scotland) got its shares whacked last week by the Fortis problems, and this week by disappointment over failure of the bailout plan to pass the house. RBS has significant US banking operations and was expected to get a decent boost from the bailout.

Bob - it would appear that the Fed will throw in the cash if necessary. Undoubtedly that was the condition for this acquisition, since there is no way Citi could have evaluated the loan portfolios in this time frame.

Citi raised a ton of cash last year in Europe, and then it got in under the wire on the samurai bonds in Japan. Now there are few other places to get money, so in fact the Wachovia banking operations hold some value for Citigroup.

770+ point drop in the Dow. All-time record (at least until tomorrow's drop).

There's been a run on GOLD GOLD GOLD GOLD GOLD -- the dealers are running dry.

Bloggers are sounding like Survivalists of the Eighties or Art Bell's phone lines at 3 AM.

I'm hearing Christianese code words for (literally) Armageddon everywhere, i.e. "Coming One World fill-in-the-blank System". Even the financial planners are pulling out Bibles and Witnessing to you about End Time Prophecy -- it's like having Hal Lindsay as your broker. I'm afraid to talk to anybody out of fear they'll start preaching to me about Revelation.

Only partially a joke. When you meet with your financial planner and he starts hinting about "You know we're living in The End Times", it's time to find another financial planner. That actually happened to me a couple months ago.

What's happening is the crazies are all coming out of the woodwork at the same time. The hardcore survivalist types have been gloating on all the housing bubble blogs for a couple months, Art Bell's guests and phone-ins are getting weird for Art Bell, and End Time Prophecy preachers (from Montanus to Hal Lindsay) are living proof that "When all you have is a Prophecy hammer, EVERYTHING looks like a Fulfillment nail."

P.S. Morning drive-time radio was joking about learning to like the taste of Alpo and "Get all your money out of the bank While You Still Can".